NEW YORK – Oil prices soared to the highest level in more than two years as violence spread in Libya and Moammar Gadhafi’s grip weakened over the country. Only a small amount of Libya’s oil production appeared to have been affected, though analysts fear that revolts will spread to OPEC heavyweights like Iran.
Benchmark West Texas Intermediate for April delivery jumped $4.59, or 5 percent to $94.30 per barrel on the New York Mercantile Exchange. The last time oil traded at that level was Oct. 2, 2008. The April contract traded as high as $98.48 per barrel.
BP said Tuesday it evacuated 70 people, including 40 of its workers, from Libya. BP isn’t producing oil in Libya, but it has been working on an exploration project. BP has 140 employees at its Libyan operation.
Spanish oil company Repsol-YPF said Tuesday it suspended operations in Libya, which produced 34,777 barrels of oil equivalent per day last year. Other oil companies, including Italy’s Eni, Royal Dutch Shell PLC, U.K.-based BP and Germany’s Wintershall, started pulling out employees. Meanwhile, key Libyan officials resigned and air force pilots defected amid a bloody crackdown on the protests.
Libya holds the most oil reserves in Africa and is the world’s 15th-largest crude exporter at 1.2 million barrels per day, according to the Energy Information Administration.
Any production losses out of Libya could be quickly absorbed by other countries like Saudi Arabia, which can ramp up production by as much as another five million barrels per day. The main concern stalking markets is that revolts in the Middle East and North Africa will spread to OPEC heavyweights, particularly Iran, the group’s second-largest producer.
Energy consultant Jim Ritterbusch said a “fear premium” has propped up oil prices by about $10 per barrel in the past several days. That means prices could tumble once the region settles down. “But that doesn’t look like it’s going to happen anytime soon, he said.”
In Iran, government opposition groups this week held their largest protests in more than a year, resulting in two deaths, though the demonstrations have failed to gain the momentum seen in North Africa.
Two Iranian naval vessels entered the Suez Canal on Tuesday en route to a training mission in Syria, officials said, the first time that Tehran has sent military ships through the strategic waterway since the 1979 Islamic Revolution.
Brent crude, which is delivered around the world and is considered a better reflection of global demand than WTI, added 60 cents at $106.34 per barrel on the ICE Futures Exchange. Brent is considered to be more sensitive to possible disruptions of Middle East oil supplies, while large U.S. stockpiles of crude are one of the reasons for the lower WTI prices.
Looking ahead, there are also knock-on effects from high oil prices. A jump in energy costs could hurt consumer spending and stymie a fragile recovery in developed countries.
The crisis in the Middle East and North Africa — which has brought down governments in Tunisia and Egypt and sparked protests in Yemen, Bahrain, Iran, Morocco and Jordan — will put added pressure on weaker economies, especially those in Europe, according to Capital Economics.
In the U.S., a run-up in fuel costs could force businesses and consumers to spend less on other things, slowing both the economy and the pace of hiring.
The U.S. economy picked up momentum at the end of 2010 and is probably growing at about a 3.2 percent annual rate or more in the first three months of the year. A $10 increase in the price of oil shaves off roughly 0.4 percentage point from economic growth, according to economist Brian Bethune at IHS Global Insight. The economy could be pushed into a recession if oil prices were to skyrocket to $150 or $160 a barrel, Bethune and other economists say.
In other Nymex trading in March contracts, heating oil rose 8.07 cents to $2.81 a gallon and gasoline gained 7.55 cents to $2.77 a gallon. Natural gas futures lost 4.3 cents to $3.83 per 1,000 cubic feet.